Hiring employees is a big step for any business, as taking on personnel means taking on responsibilities such as payroll procedures, compliance with labor laws, creating policies on employee conduct and responsibility, etc. Before deciding to hire employees, think about the overall goals of your business and determine how employees can help further your ambitions.

Small businesses cannot afford to have unproductive employees on staff, so it’s important to have very specific aims for your staff and to hire people who are dependable and have a good work ethic.

When considering adding staff, the first thing you should do is create a job description for your new employee or employees. Sit down and draw up a job analysis for the new position, detailing the:

- Physical and mental tasks involved with the job, and the physical ability or educational and experience level required to adequately do the job.

- The goal of the position. What the employee will do to further the success of your company, and how the employee will work with you and other employees.

- Pay scales and possibilities for raises or promotions. Understanding how much the position will cost you in salary and benefits is important to evaluating whether the position is worthwhile.

- Metrics for performance. How will you evaluate whether the new employee is meeting your goals? Is there a sales or production number you hope to hit? Will you conduct annual performance reviews for the employee.

Contracting Out

Before committing to creating a new position, consider whether you can contract the services out to an outside firm or employment agency. There are considerable paperwork and managerial benefits that come from outsourcing work, but quality and your ability to supervise may impacted by the decision.

When deciding whether to contract work out, consider the work you need done. If it requires very specific training, it may not be advantageous to contract the work out. However, if it is a more generalized task, or one that the outside contractor has expertise in, contracting the work out may be the better solution.

There are certain tax advantages businesses can derive from hiring contract employees, such as freedom from the responsibility to make tax withholdings and pay employer FICA and unemployment taxes. However, there are laws that govern which employees may be classified as independent contractors and misclassifying employees can result in substantial penalties. It’s wise to consult with your financial advisor or information available from the Internal Revenue Service before classifying employees as independent contractors.

Hiring practices

When you prepare to make hires, be aware of federal laws regarding employment opportunities. Equal Employment Opportunity Commission guidelines forbid employers, in most cases, from asking about age, sex, creed, race, disability, marital status, or type of military discharge the applicant may have received.

When making hires, it’s typically verboten to make inquiries about a candidate’s race, religion, marital status, sexual orientation, family status and other questions of this nature.

Also, the Americans with Disabilities Act forbids employers with 15 or more workers from refusing to hire people with disabilities, if by making reasonable accommodations the employer could create an environment where the worker could do the job.

If you’re not sure whether the job description you’ve written is simpatico with the law, you may want to give the EEOC a call to determine whether your job description is in the clear.

Drug Testing

In some states, employers may be allowed to require their employees to submit to drug testing before they are hired. Drug tests can help to head off potential problems, allowing you to identify employees who, because of their drug use, could pose significant performance, legal and other hazards to your business. Some businesses may even be required by their insurers to use pre-employment drug screening because of the risk for loss that employees who abuse drugs pose.

If you’re thinking about instituting a drug testing policy for new hires, consult with your state’s employment or civil rights authority to make sure testing is allowed, and under what circumstances. Typically, businesses will contract with medical service providers to conduct drug testing.

Help Wanted

Once you’ve completed the job analysis and determined that you need to make a hire, write the job description. List the job’s responsibilities and duties, the work hours and the skills or professional certifications or degrees necessary to perform the work required. Be thorough and be sure to spell out exactly what you want your new hire to do at your business.

When you’ve written the job description you’ll want to advertise the position to draw applicants. You may want to take out a classified ad in a newspaper or trade publication, list a job opening on Monster or other job websites.

Criminal background checks

When you hire new employees, you’re taking a leap of faith by trusting the person you hire with a portion of your livelihood. That’s why you may want to inquire about new hires’ criminal history. Also, in some industries, such as child care, there may be regulations requiring criminal background checks.

Prior to making the final decision on a new hire, run the potential hire’s name through Google to see what you find. Local news reports about crime often make it online, and taking a few seconds with Google could help you spot a red flag. Remember that there is more than one John Smith in the world, and probably in your town, so be sure to confirm identities before making further inquiries or final decisions.

If you need a more thorough background check, contact your local police department. They may be able to conduct a background check for a price or point you to a reputable search firm that can help you. If you’re doing a state mandated background check (for example, 45 states require background checks for child care workers) be sure to use a recognized and approved background search firm.

Hiring Family

If you have a member of your immediate family you can put to work, this may be a good employment solution. By hiring your children or spouse, you may be able to move your family income into a lower tax bracket. Hiring your children is particularly attractive, as it allows you to transfer money to your children without butting into federal gift or estate taxes.

If your business is unincorporated, wages paid to children under the age of 18 are not subject to Social Security or FICA taxes. Older children may be able to make tax-deductible contributions to an IRA, giving them a jump on their retirement plans.

If you do hire family, particularly if you hire children, be sure to pay them a salary that is standard for the type of work that they’re doing, so as not to lead the IRS to believe that you are only employing family to unfairly take advantage of the tax benefits.

One caveat about hiring family – it’s tough to fire them. When hiring family members, be sure to honestly and objectively assess their capability to contribute constructively to your business and the likelihood that they’ll take advantage of their familial relationship to underperform or engage in objectionable behaviors. If they have a likelihood of being a problem, it’s a lot easier not to hire them than to endure the family turmoil likely to occur if you must fire them later.

Small businesses are a major creator of job growth in the U.S. By hiring employees, even on a temporary basis, you’ve helped the overall economy and the individuals you’ve hired. By having a precise idea of why you’re hiring, and making sure to hire the people who will do the most good for your company, the overall good you’ve done for the economy by hiring will also be good for your small business.

The best way to ensure you have great employees lies in the hiring process. Finding out an employee may not be suited for your business can sometimes take weeks or even months to discover, and in some cases, it could take you months to make the appropriate change because of legal or moral issues. By making sure you hire the right people, you save yourself and people who just aren’t a good fit for your business a lot of trouble.

While there’s certainly red flags that should put you off hiring a person, there are also quite a few indicators that can be used to identify a potentially great employee. Here are a few green flags for prospective employees:

1. Resume. A potential employee’s resume is his or her first opportunity to communicate with you, and an employer can learn a lot about about a job candidate just from his or her presentation on the resume. Is the resume well-organized and easy to read? Are good spelling and grammar used? These may seem like nit-picky items, but an employee who pays close attention to his or her resume is more likely to pay close attention to the important details you assign on the job.

2. Experience. A job candidate who is experienced in the work you’re hiring for has big advantages over less experienced candidates. The experienced candidate will likely require less training and supervision than a less experienced candidate and may be able to help fill gaps in your knowledge if you’re a first-time entrepreneur. In fact, it’s recommended that first-time business owners hire well-seasoned workers in the field in which they’ve started a business to help sherpa them through the early stages.

3. Education. Formal training in a job field is a plus, especially when it’s training specific to the job field you need to fill. Candidates with formal education have important practical training and a grounding in the theory that helps them think through problems rather than just being good at a few narrowly defined tasks.

4. References. Always be sure to check an employees references. You can tell a lot about an employee by what former associates and employers have to say about them. Also consider who they list as references. If an employee only lists co-workers and not managers, this may be a problem.

5. Awards and recognition. If a job candidate has professional awards listed on his or her resume, it shows that the employee both knows and excels in his or her field.

6. Stable employment history. If an employee has bounced around from job to job, chances are that he or she won’t stick around long at your business, either. Unless you’re in a business where high turnover is common or desired, you may want to find someone more willing to go the long haul.

7. Letters of recommendation. If someone took the time to sit down and write a letter of recommendation for a job candidate, chances are you’re looking at a good employee. In today’s busy business climate, time is at a premium. An executive or community leader making the time to recommend a former employee or business associate is a major statement of confidence.

8. Appearance. If an employee presents a clean and neat appearance at an interview, there’s an excellent chance that the employee will present the same respect and attention to detail to your business. Image is a big part of business, and employees who understand this make excellent representatives of your company to the public.

9. Membership in professional or trade organizations. Job candidates who are members of professional or trade organizations show a devotion to their careers and craft that mark them as a cut above average job candidates. Many professional organizations are invite-only groups, so your prospective job candidate has likely already had to meet some pretty stringent requirements. If your prospective employee is an officer in a trade organization or professional group, that shows further personal and professional acumen.

10. Your gut feeling. If you strongly feel that an employee is a good fit for your company, go with that gut feeling as long as there’s no major red flags. Your intuitive thought process may have picked up on something your conscious mind did not.

When hiring employees, remember to be mindful of federal employment laws, and avoid asking questions about race, creed, nationality or other protected status. There’s enough job-related material you can use to evaluate prospective employees without running afoul of the law.